08 June 2014

Insurance Towards More Investment

A couple of days ago, I read an article regarding a smart investor who can easily earn about 8% compound annual return rate for more than 10 years but buying a so called "hybrid" insurance cum investment product. According to him, he just need to make a 5 years lump sum payment of RM50K and then he can enjoy a series of so called "pension" money for every year for next 20 years and the total money received is about 2 times of all money he paid for the insurance premium. Besides that, he can have amount of about nearly 80% of total money received covered if he passed away. He is quite happy with that arrangement as this is a product that brings him two benefits:

1. Insurance Covered
2. Investment Made

No doubt, this is a good product introduced to people who is not investment savvy and "save" savvy. This is a kind of product that forcing people to save the bulk of money to invest it in insurance product that also give you benefit of amount of insurance covered in case you pass away. But for a guy who can earn 8% annually, the suggestion to him is to separate the amount to:

1. Buy a Term Life Insurance or just a rider that protect part of his life span (especially to protect his future earning power during his working period until 60s and so that his dependencies wont get into trouble. At least his kids now can live until completing their college studies)
2. Invest it in prudence way and so that he can still enjoy a 8% investment return for another 20 - 30 years.

I believe that for many people who bought or buying insurance products, they are easily confused by the features of the insurance product introduced to them. To boost up earnings of the insurance company, many of the insurance companies trying to come out with new features product that can beat other products in the market. As time goes by, more and more complicated products are created by the financial professionals to give more benefits / features to policy holders.

So you would understand why financial education is important to most people for making changes in their life (especially their life after retirement).

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